MARKETING MANAGEMENT
Product Differentiation
RAGHAV JHA
Product Differentiation
It is a process of distinguishing a product or service offering from others, to make it more attractive to a particular target market vis-à-vis competitors products as well as a firm’s own product offering .
Product Differentiation
A business differentiation strategy intended to:
• increase the perceived value of the focalfirm’s products and/or services relativeto the value of competitor’s products and/orservices
• create a customer preference for the focal firm’sproducts and/or services
Bases of DifferentiationThree Categories
1) Product Attributes
2) Firm—Customer Relationships
3) Firm Linkages
Bases of Differentiation
Product Attributes
Preferences are created by actual differences in tangible product and services offered by focal firm vis-à-vis competitors offering
e.g. Quality featureproduct complexityTiming of introduction
Bases of Differentiation
Relationship with customerPreferences are created as the focal firm
develops and exploits relationship with customer based on what the target customers want
• Customization• Consumer Marketing• Reputation
Firm Linkages
Preferences are created by combining the competencies of different functions within or across organization to produce tangible or intangible differences between focal firm offering and competitors offering
• Linkages with other Firms• Product Mix• Distribution Channels• Service and Support
Bases of DifferentiationA base of differentiation must fill somecustomer need:
• price
Quality • features
• taste
• performance
• style
• durability• reliability• servicing
• customization
• • form
• belonging
A differentiated product fills one or more needsbetter than the products of competitors
QUALITY
STYLE
ADVANTAGE CREATES VALUE NON-PRICE COMPETITION BRAND LOYALTY NO PERCEIVED SUBSTITUTE ABNORMAL PROFIT VARIETY
DISADVANTAGE EXPENSIVE HINDERS MARKET
ENTRY
Competitive Advantage
The Value of Product Differentiation
Qind
Pff
Dff
MRff
ATCind
MCff
Pind Dind
ATCff
Qff
Focal Firm with No Differentiated Product
Focal Firm withDifferentiated Product
Above NormalProfits
A product differentiation strategy must meet theVRIO criteria…
it should Valuable
it should Rare
it should be costly to Imitate?
Is the firm Organized to exploit it?
…if it is to create competitive advantage.
Summary
• product differentiation creates customer preferences
• preferences allow firms to make above normal profits
• almost anything can be a base of differentiation
• bases of product differentiation that meet theVRIO criteria may generate competitive advantage
• a product differentiation strategy is only as goodas its implementation
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